Understanding Value Added Tax (VAT) in Vietnam

Value Added Tax (VAT) is somewhat similar to goods and services tax (GST) in some countries. It is an indirect tax which ultimately make consumers responsible for paying the cost. All most all transactions regarding good supply, services provision and imports will be subject to VAT.

In general, VAT is calculated based on the value added at each stage belonged to the production and distribution supply chain. The amount of VAT is determined as a specific percentage of the price sold to end-users.

The current rate of Value Added Tax

Currently, the standard rate is ten percent (10%) and is applied for most types of products and services. However, there are especially other rates of 5% and 0% and VAT exemption.

• VAT rate 0%: This rate only applies to exported goods and services which are sold to overseas (areas outside Vietnam), good processed for export, goods sold to duty shops and some specific export services, international transportation services.

• VAT rate 5%: This special tax rate applies to some essential goods and services including clean water, books, unprocessed food, services on agricultural, technical and scientific fields, teaching aids, rubber latex, sugar, social housing…

• VAT exemption: products and services belonged to this special category with have its output uncharged for VAT and the input uncreditable. Input shall only be considered as deductible expenses in calculating CIT (Corporate Income Tax).

To manage VAT, all organizations and individuals involving in providing taxable goods and services must legally register for VAT. It is required that each brand or outlet of a company must separately register and make tax declaration on its own activities. Even the transfers of goods and services between branches or outlets may be subject to VAT. According to the current Vietnam tax law, within 10 days of establishment date, a company is required to complete the tax payment registration. There are two types of VAT payable calculation: tax credit method and direct calculation based on the added value.

After that, VAT administration task at corporate level involves filing and payment of outstanding VAT, which must be make monthly on or be before the deadline of the 20th of the next month.

The proposal to raise VAT rate

Under the latest proposal submitted by the Ministry of Finance in Vietnam, Value added tax (VAT) is expected to raise 2% to 12% starting from 2019.

The proposal is now under debate. However, if it is approved, Vietnam will fall into the top 2 country for having highest VAT rate in Southeast Asia, following Philippines. In this country, goods and services are generally levied at 18%. Currently, the standard rate of 12% has provoked an intense debate among businesses, policy makers and economists.

The Ministry may insist that raising VAT is the global trend in many developed countries in Europe and America. However, some experienced analysts and experts have pointed out that the 2-percent tax hike will negatively impact on consumption, worsening the situation of poor purchasing power over the past few years.